Rewarding creativity - fixing the value gap

Fixing the value gap

Prior to 2015, the global recording industry experienced more than a decade of significant decline. Throughout this period, record companies continued to invest in music, to nurture and develop artists and, crucially, to innovate and transform their practices to usher in a new digital era.

However, significant challenges need to be overcome if the industry is going to move to sustainable growth. The whole music sector has united in its effort to fix the fundamental flaw in today’s music market, known as the ‘value gap’, where fair revenues are not being returned to those who are creating and investing in music. The value gap is now the industry’s single highest legislative priority as it seeks to create a level playing field for the digital market and secure the future of the industry.

"The music world is seizing the moment and uniting in its efforts to fix the value gap. If we can get this right, then the recent, modest growth can be just the start of a longer journey to a significantly stronger and fairer global business."

Frances Moore, Chief Executive IFPI

Breaking down the value gap

what is the value gap?

The value gap describes the growing mismatch between the value that user upload services, such as YouTube, extract from music and the revenue returned to the music community – those who are creating and investing in music. The value gap is the biggest threat to the future sustainability of the music industry.

How has it come about?

Inconsistent applications of online liability laws have emboldened certain services to claim that they are not liable for the music they make available to the public. Today, services such as YouTube, which have developed sophisticated on-demand music platforms, use this as a shield to avoid licensing music on fair terms like other digital services, claiming they are not legally responsible for the music they distribute on their site.

why is it a problem?

The music ecosystem is dependent on record companies investing in music and in artists. Music must be valued fairly and those that invest in it and create it must be properly remunerated. If services that are not recognising the true value of music are allowed to attract users from other, fairly licensed, services and therefore drain revenues from the system, then it becomes unsustainable. The situation also creates unfair competition. Services such as Spotify, Deezer and Apple Music are forced to compete with services that claim they are not liable for the music they distribute.

how can it be fixed?

Legislative action is needed to ensure that liability laws are applied correctly and consistently, so that services cannot claim they do not need to be licensed to distribute music. The music community is united in calling for policymakers to take action.

The evidence

User upload video streaming services, benefitting from the misapplication of ‘safe harbours’, comprise the world’s largest on-demand music audience, conservatively estimated at more than 900 million users. The revenue returning to rights holders through these services in 2016 amounted to US$553 million. By contrast, a much smaller user base of 212 million users of audio subscription services (both paid and adsupported), that have negotiated licenses on fair terms, contributed over US$3.9 billion.

From publicly available data, IFPI estimates that Spotify paid record companies US$20 per user in 2015, the last year of available data. By contrast, it is estimated that YouTube returned less than US$1 for each music user.